Abbott Industries bought a property with land and a building on it for $20,000,000.An independent appraisal of the land put the value of the land between $5,000,000 and $8,000,000.If Abbott's financial reporting objective is to minimize taxes how should the cost be allocated to the two assets? $\begin{array}{ll}
&\text {Land }&\text {Building }\
\hline\text { A) } &\$ 5,000,000 & \$ 15,000,000 \
\text { B) } &\$ 6,500,000 & \$ 13,500,000 \
\text { C) } &\$ 8,000,000 & \$ 12,000,000 \
\text { D) }& \$ 10,000,000 & \$ 10,000,000
\end{array}$

Question

Quizplus · Accepted Answer

To minimize taxes, the cost should be allocated to the land at the lower end of the appraisal range and to the building at the higher end of the range. This will result in a lower depreciation expense for the building, which will reduce taxable income.

Abbott Industries Bought a Property with Land and a Building